Standard & Poor’s cited a “windfall settlement” with Google Inc. in raising North Providence, R.I.’s general obligation bond rating two notches to BBB-plus from BBB-minus. The outlook is stable.

“The upgrade reflects improvements in the town’s financial position and significantly improved pension funding levels,” said credit analyst Henry Henderson.

In January, North Providence and East Providence received permission from the U.S. Department of Justice to use some of their shares of a $500 million federal settlement in 2011 with the online search engine to replenish police pension funds. Each city had received $60 million in April 2012 after assisting a federal investigation into online ads that Google distributed for Canadian pharmacies that were illegally marketing prescription drugs to Americans.

After the award, both communities asked to spend the money for purposes outside of DOJ’s guidelines for the program, which generally limit use of “equitable sharing” funds to expenses such as police training, equipment and the improvement of facilities.

According to Standard & Poor’s, the settlement improved the police pension funding ratio from 45.3% as of July 1, 2010, to 94.9% as of July 1, 2012. Unfunded accrued liability dropped to $1.8 million.

North Providence reported general fund surpluses in fiscal years 2010 through 2012 after issuing $10.3 million of deficit-reduction bonds. The town proceeded with a deficit-reduction plan that included several charter revisions.

Standard & Poor’s, while acknowledging the town’s income and property wealth levels as plusses, warned that credit weaknesses included a significant tax-base decline in 2012 and a high unemployment rate, which could hurt property tax collections.

Moody’s Investors Service in October revised the town’s outlook to stable from negative while affirming its Baa2 rating.

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